Buying a home is one of the major purchase decisions of your life; therefore it's important to be an informed buyer. The following information will help you better understand the complete buying process and assist you in your efforts.

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The Home Buying
Process

Home ownership is the
culmination of the American dream. It is a symbol of financial security and
stability won by hard work and saving. The process of buying a home is both a
thrilling and exhausting experience, but with the help of the right real estate
agent and some useful tips, you can own a beautiful — and affordable — piece of
the American dream.

Getting Pre-Approved for a Mortgage

The first critical step to buying a home is
figuring out how much you can afford to spend. Almost no one buys a home with
cash. Instead, homebuyers get a loan called amortgage. They pay off the loan in fixed monthly payments based on the
total amount of the loan and the interest rate. Before you even begin looking
for a house, you need to talk with a bank -- or several banks -- to get
pre-approval for a mortgage.

The bank will ask you a series of financial
questions to determine how much you can afford to pay each month. That number
will determine the price range of affordable houses. The main numbers the bank
wants to know are how much you earn in income and how much you owe in debt
(credit cards, student loans, car loans, etc.). While these numbers give a
solid big picture of your finances, you also need to check your budget.

A goodbudgetincludes all of your monthly income minus all of your monthly
expenses: food, gas, debt payments, entertainment, etc. A complete and accurate
budget is the best way to figure out exactly how much money is available every
month for a mortgage payment. If that number is lower than the bank's, play it
safe and go with your calculations.

Notice that there's a difference between
gettingpre-qualifiedand gettingpre-approved. Pre-qualified means that you've told a lender your
income level and your debt and credit information, and the lender estimated
what you can afford. Pre-approval, however, means that the lender has done the
legwork of pulling yourcredit report, checking yourdebt-to-income ratio, and running a more
in-depth analysis of your financial situation. The result is an official pre-approval
letter than can be help seal the deal when negotiation with a seller. Sellers
know that a pre-approved offer is more likely to result in a completedsale, which might convince them to accept a lower
price.

Throughout the pre-approval process, there are
some key facts to remember. The monthly mortgage payment is only part of the
expense of buying a house. In most cases, you're expected to make a down
payment of at least 20 percent of the home price to secure the loan.
(First-timers can take advantage of programs that allow them to put down
significantly less money.)To do that, you'll need a significant sum of cash on
hand. There are also a number of additional costs that are not included in the
standard calculation of monthly payments. Ask your lender about property taxes
in your area, the cost of mortgage insurance and the average closing costs for
homes in your price range.

Preparing for Your
House Search

Before you even begin searching online, sit
down and think about what you "need" versus what you "want"
in a home. Start with the things you absolutely need: three bedrooms, central
air, a backyard, a good school district, etc. Then list your wants: hardwood
floors, a large kitchen or a swimming pool. By keeping these distinctions in
mind, you can focus your search on the homes that meet all of your needs and
include at least a few of your wants. Always be prepared to make some
compromises to stay within your price range.

Consider different types of homes such as
condos, town homes and apartments. Depending on the stage of your life, a
low-maintenance condo or apartment may be a better choice than a single-family
home. Also think about the style of home you like: traditional or modern, brick
or aluminum siding? While these seem like superficial considerations, you might
find that you or your spouse has strong opinions.

Of all of the decisions to make before you
begin your home search, arguably the most important is location. The location
of your home mirrors your list of needs and wants. If you need a good school
district, stick to locations with good schools. If you need to be able to walk
or bike to work, search within a tight radius of your office. If you're looking
for peace and quiet, avoid homes along major roads. By combining these
requirements, you will waste less time looking in the wrong places.

Keep in mind that your location preferences
may change over time. For example, having kids raises the importance of a good
school district. And what if you lose or leave that walk able job? Would you
still want to live in that neighborhood? Make sure to balance your near-term
needs with your long-term goals. With a tight housing market, it's not always
possible to sell and buy a new house every few years.

A buyer's agent is a real estate agent who is
working exclusively for you, the homebuyer. A regular real estate agent becomes
a buyer's agent by signing a contract with the buyer. The contract stipulates
that the agent will work to negotiate the best price, ensure the property is
inspected, and represent your interests throughout the entire process. What you
tell a buyer's agent, like the maximum you can afford to pay, remains
confidential.

Will you pay more for a buyer's agent? No--In
most cases, the buyer's agent splits the sales commission with the seller's
agent and you don't pay anything. You could argue that this arrangement still
favors the seller, since even the buyer's agent will want the highest
commission possible. Buyer's agents counter that the difference in commission
is usually so small that it doesn't affect their loyalty to the buyer. For
example, if the total commission on a $150,000 is six percent, then the buyer's
agent takes home half, or $4,500. If the agent negotiates the price down to $140,000,
his take is only $300 less.

Once you settle on a real estate agent, it's
time to start house hunting!

House Hunting

Your real estate agent will ask you a series
of questions to find out exactly what type of home you're looking for and
where. She will take those criteria and search the Multiple Listing
Service (MLS) for matching properties.

Since most of the same listings are available
online, do some searching of your own. Trulia.com and Realtor.com are two
excellent sites for unbiased search results. Sites like ForSaleByOwner.com or
Craigslist.org include private listings that aren't in the MLS database. Some
listings offer virtual online tours and most include lots of interior
and exterior photos. Online listings include useful information like how long
the home has been on the market and stats about the local school district. You
can even use convenient online calculators to estimate your monthly mortgage payment
including property taxes.

Together, you and your realtor will assemble a
list of the top homes to visit in person. This is the exciting part. Your agent
will make appointments with the sellers' agents for showings. Most
showings are done when the current owners are out of the house. In some cases
the seller's agent is there to tell you more about the house. If not, the agent
usually supplies a printed overview of the home's amenities called the listing
sheet. Use the back of the listing sheet to take your own notes on the home's
good and bad qualities. Bring a digital camera and snap lots of photos. It's
amazing how quickly you forget a beautiful staircase or a clogged shower drain
when it's your tenth house of the day.

If you find a few houses you like, return for
a second walk-through during a different time of day. The neighbor's dog could
bark all night or a freight train might pass a block away every day at 6 am.
You might feel like you're bothering the owners, but it's worth the extra
effort when making such an important long-term investment.

Making an Offer on a House

After weeks or months of searching, you've
found the house you want. It meets all of your needs and a surprising amount of
your wants for an affordable price. Now you are ready to begin the negotiation
stage of home buying. It's time to make an offer.

But how much do you offer? Everyone wants to
get a good deal, but how much lower than the asking price can you go? And when
is it smart to offer more than the asking price? The starting point is your
mortgage pre-approval letter. Remind yourself that there is a maximum amount
you can afford to pay. The goal is to pay even less than this, giving you more
breathing room in your budget.

The listing price is certainly a key indicator
of value, but it's not the only one. A good place to start is by checking the
sales price of homes that recently sold in the same neighborhood. Your real
estate agent can provide you with a Comparative Market Analysis (CMA) or you
can look it up on sites like Trulia.com by searching the "sold"
listings. If the sales prices of similar homes are roughly the same as the
listing price, then you know you're in the right ballpark. If they're radically
higher, it could mean that the seller is hiding a flaw. Radically lower? The
seller is inflating his price.

Talk to your real estate agent about
short-term and long-term price trends. Is the area getting hotter or did the
bubble recently burst? How long has the home been on the market and how does
that compare to others in the area? You should also see how much you can find
out about previous offers. Have there been any? Why were they rejected? A savvy
buyer's agent might also be able to gather clues about the seller's motivation.
Are they desperate to unload or are they holding out for the asking price?

In rare situations, such as an incredibly hot
real estate market in a city like San Francisco or New York, it's necessary to
offer more than the asking price. This is something you should discuss in
detail with your real estate agent, who can best serve your interests in a
potentially expensive bidding war.

Once you arrive on a price, it's time to draw
up the details of the offer. More about that on the next page.

Your Offered Purchase
Price

An offer letter reads like a legal contract.
In some states, once the offer is accepted, the document automatically becomes
the purchase contract. Your real estate agent will be experienced with drawing
up the offer letter, but make sure you understand the details of the offer
agreement before you sign on the line. You may be asked to offer earnest
money, along with the offer. (It's just enough of your down payment to let the
lender know you're serious.) This is normal. However, if the seller accepts
your offer and you decide to back out of the deal, you will forfeit that hand
money.

Since the offer letter often doubles as a
contract, it will include a long list of clauses and contingencies required of
both the buyer and seller. Here are some examples of items that will be
included your offer:

Your offered price and the amount of earnest money you are
putting down

Home inspection
contingencies: Since the
inspection may take place after the offer is accepted, you need to state that
the entire deal is contingent upon an acceptable inspection report. If the
house is on a well and septic system rather than city water and sewer, these
should also be inspected

Financing
contingencies: You can also
include a contingency for getting the mortgage you
want (i.e., maximum interest
rates, expected terms, etc.)

Items included in the purchase: This list can include things like major
appliances (often the refrigerator goes with the seller), lighting fixtures,
shrubbery, basically anything that isn't nailed down and some things that are!

Title contingencies: Your attorney will do a title search to
make sure the property does not have any other legal claims against it (i.e.
liens) and that the seller holds a clear title

Timeline: A deadline for responding so you know
when to consider the offer rejected

In most states, the seller is under no
obligation to accept an offer, even if it matches the listing price. The seller
doesn't even have to explain why an offer was rejected. In most cases, though,
you should expect to receive an answer within a day or two. If the offer was
too low, the seller will tell you. Then it's time for the age-old dance called
negotiating.

Negotiating a Purchase
Price

Unless you live in an extremely depressed
housing market, a seller rarely accepts an initial offer at face value. You can
almost always expect some sort of counter to your offer and at least one round
of negotiations.
The obstacle may be strictly related to price or it may be the fact that you
want the porch swing and washer and dryer included in the deal. Either way,
prepare for some haggling.

It's extremely important that you stay true to
your mortgage pre-approval letter throughout the negotiations. It is very easy
to fall in love with a house, especially if you've been looking for a long time
or feel pressured to leave your current place. Don't let your heart or your
emotions prod you into making a potentially disastrous financial decision.
Failure to make house payments can resort in foreclosure, bankruptcy or worse.
If the seller doesn't accept your best possible offer, you have to walk away
and wait for the next opportunity to come along.

With persistence and some luck, you and the
seller will arrive at a fair price for the home. Depending on the real estate
laws in your state, the offer letter itself might become the contract or you
will need to draft and sign a separate document. If you haven't already
deposited earnest money, you will do so now. Even if you sign the contract, you
can still back out of the purchase, but you will lose that deposit.

Once the purchase contract is signed, both you
and the seller will need to follow through on the contingencies of the
contract, starting with the home inspection. More about that on the next page.

Home Inspection

A professional and thorough home inspection is
absolutely critical when buying a home. As the buyer, you pay for the
inspection, which will cost between $200 and $500. But don't let the cost deter
you. Without an inspection, you could be making the biggest investment of your
life in a lemon. Even with a brand new house, there may be hidden problems that
only a professional inspector can find.

Your real estate agent can recommend an
experienced inspector. If you are getting an FHA or VA loan, you will
also have to have an additional inspection. (Don't let that one be the only
inspection you get, however, because it may not be as thorough as a full-blown
inspection.)

Your purchase offer should be contingent on
the results of the professional inspection. This means that if the inspection
turns up something like a really bad termite infestation or cracks in the
foundation, you can back out of the contract, or you can have the seller repair
the problem to your satisfaction.

Here are the major areas the inspector will
cover:

Foundation: If there is a basement or crawl space,
are there signs of water damage? Are there any cracks in the walls or floor
that might indicate structural problems?

Construction: Does the house have good quality construction? Is the
flashing properly installed to protect wood, are there any rotting problems
with the wood, is the roof in good shape or will it need to be replaced soon?

Plumbing: Has the plumbing been properly
installed? Is it in good shape? Is there any evidence of leaks?

Heating andcooling systems: Are the units
in good shape? Will they need replacing soon? Are they rated for the amount of
square footage they are heating?

Electrical: Do there appear to be any electrical
problems or code violations?

Interior: Are the floors level? Do windows and
doors function properly? Do the appliances in the kitchen function properly? Is
there any evidence of leaks or mildew in the bathrooms?

The inspector will provide you with a printed
report showing everything that passed and the (hopefully) few things that
didn't. This report will be your ammunition if you need to renegotiate the
purchase contract to include repairs. If the inspection report is clean, it's
time to get ready for the big day: the closing.

Closing on Your House

With the inspection behind you, the next step
is to lock in the terms of your mortgage. Most banks are willing to lock in an
interest rate for 60 days. Another important step is for your real estate agent
or real estate attorney to conduct a title search to ensure that no one else
claims ownership of the title or holds any liens against it. Examples of liens
are a second mortgage on the home or a tax lien from unpaid property taxes.

If everything is clear, then you are ready for
the closing, one of the most significant days of your financial life. At the
closing, you and the sellers -- along with your real estate agents -- will meet
in a conference room to sign the largest stack of papers you've ever seen. When
you leave, you will have a mortgage, a title, and the keys to your new home.

For a smooth closing, come prepared. First,
you will need to gather the following documents:

Proof of homeowner's
insurance: A letter proving
that you have secured homeowner's insurance for the property

Down payment on the
mortgage: Your lender will
require a certified check for the full amount of the down payment and any
closing costs (not covered by the seller).

Closing costs: Another certified check to cover
miscellaneous closing costs, which your agent will negotiate with the sellers

The closing itself will be run by a closing
agent, a neutral third party in the purchase. His or her job is to ensure that
you understand each form you are signing, and there are many of them. Here are
some of the most important for the buyer:

Mortgage note: After reviewing and signing a truth in
lending statement, you will officially sign on to the mortgage, agreeing to
foreclosure if you fail to make timely payments

Settlement statement: Also known as HUD Form 1, this document
explains all of the settlement costs and who is responsible for them

Deed: This is the document that officially
transfers the title from seller to buyer

Expect to spend at least an hour or more at
your closing. Make sure you have your lawyer present to double-check all your
documents. If you have small children, get a babysitter. All of your attention
needs to be focused on listening to the closing agent and double-checking the
documents. Incredibly, after the last document and check is signed, the closing
agent will hand you a set of keys to your new home.